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Creator: Hansen, Gary D. (Gary Duane) and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 257 Abstract:
A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. We use a standard growth model with one good and two available technologies. The first, denoted the Malthus technology, requires land, labor, and reproducible capital as inputs. The second, denoted the Solow technology, does not require land. We show that in the early stages of development, only the Malthus technology is used, and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable, and both technologies are employed. In the limit, the economy behaves like a standard Solow growth model.
Assujettir: O41 - One, Two, and Multisector Growth Models and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 545 Abstract:
Because ﬁrms invest heavily in R&D, software, brands, and other intangible assets—at a rate close to that of tangible assets—changes in measured GDP, which does not include all intangible investments, understate the actual changes in total output. If changes in the labor input are more precisely measured, then it is possible to observe little change in measured total factor productivity (TFP) coincidentally with large changes in hours and investment. This mismeasurement leaves business cycle modelers with large and unexplained labor wedges accounting for most of the ﬂuctuations in aggregate data. To address this issue, I incorporate intangible investments into a multi-sector general equilibrium model and parameterize income and cost shares using data from an updated U.S. input and output table, with intangible investments reassigned from intermediate to ﬁnal uses. I employ maximum likelihood methods and quarterly observations on sectoral gross outputs for the United States over the period 1985–2014 to estimate processes for latent sectoral TFPs—that have common and sector-speciﬁc components. Aggregate hours are not used to estimate TFPs, but the model predicts changes in hours that compare well with the actual hours series and account for roughly two-thirds of its standard deviation. I ﬁnd that sector-speciﬁc shocks and industry linkages play an important role in accounting for ﬂuctuations and comovements in aggregate and industry-level U.S. data, and I ﬁnd that the model’s common component of TFP is not correlated at business cycle frequencies with the standard measures of aggregate TFP used in the macroeconomic literature.
Mot-clé: Total factor productivity, Business cycles, Intangible investments, and Input-output linkages Assujettir: D57 - General Equilibrium and Disequilibrium: Input-Output Tables and Analysis, E32 - Business Fluctuations; Cycles, and O41 - One, Two, and Multisector Growth Models
Creator: Segerstrom, Paul Stephen, 1957- Series: Economic growth and development Abstract:
This paper develops a dynamic general equilibrium model of economic growth. The model has a steady state equilibrium in which some firms devote resources to discovering qualitatively improved products and other firms devote resources to copying these products. Rates of both innovation and imitation are endogenously determined based on the outcomes of R&D races between firms. Innovation subsidies are shown to unambiguously promote economic growth. Welfare is only enhanced however if the steady state intensity of innovative effort exceeds a critical level.
Assujettir: O41 - One, Two, and Multisector Growth Models and O31 - Technological change ; Research and development - Innovation and invention : Processes and incentives
Creator: Backus, David, Kehoe, Patrick J., and Kehoe, Timothy Jerome, 1953- Series: Modeling North American economic integration Abstract:
We look for the scale effects on growth predicted by some theories of trade and growth based on dynamic returns to scale at the national or industry level. The increasing returns can arise from learning by doing, investment in human capital, research and development, or development of new products. We find some evidence of a relation between growth rates and the measures of scale implied by the learning by doing theory, especially total manufacturing. With respect to human capital, there is some evidence of a relation between growth rates and per capita measures of inputs into the human capital accumulation process, but little evidence of a relation with the scale of inputs. There is also little evidence that growth rates are related to measures of inputs into R&D. We find, however, that growth rates are related to measures of intra-industry trade, particularly when we control for scale of industry.
Mot-clé: External effects, Intra-industry trade, Specialization indexes, Increasing returns to scale, Learning by doing, Research and development, Human capital, and International trade Assujettir: F43 - Economic Growth of Open Economies and O41 - One, Two, and Multisector Growth Models
Creator: Caselli, Francesco, 1966- and Coleman, Wilbur John Series: Productivity and the industrial revolution Abstract:
The process by which per capita income in the South converged to northern levels is intimately related to the structural transformation of the U.S. economy. We find that empirically most of the southern gains are attributable to the nation-wide convergence of agricultural wages to non-agricultural wages, and the faster rate of transition of the Southern labor force from agricultural to non-agricultural jobs. Similar results describe the Mid-West's catch up to the North-East (but not the relative experience of the West). To explain these observations, we construct a model in which the South (Mid-West) has a comparative advantage in producing unskilled-labor intensive agricultural goods. Thus, it starts with a disproportionate share of the unskilled labor force and lower per capita incomes. Over time, declining education/training costs induce an increasing proportion of the labor force to move out of the (unskilled) agricultural sector and into the (skilled) non-agricultural sector. The decline in the agricultural labor force leads to an increase in relative agricultural wages. Both effects benefit the South (Mid-West) disproportionately since it has more agricultural workers. The model successfully matches the quantitative features of the U.S. structural transformation and regional convergence, as well as several other stylized facts on U.S. economic growth in the last century. The model does not rely on frictions on factor mobility, since in our empirical work we find this channel to be less important than the compositional effects the model emphasizes.
Mot-clé: Regional economies, Agricultural and non-agricultural workers, Skill acquisition, Regional convergence, and Structural transformation Assujettir: O41 - One, Two, and Multisector Growth Models, O18 - Economic development - Regional, urban, and rural analyses, and O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology
Creator: Boldrin, Michele, Christiano, Lawrence J., and Fisher, Jonas D. M. (Jonas Daniel Maurice), 1965- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 280 Abstract:
We introduce two modifications into the standard real business cycle model: habit persistence preferences and limitations on intersectoral factor mobility. The resulting model is consistent with the observed mean equity premium, mean risk free rate and Sharpe ratio on equity. The model does roughly as well as the standard real business cycle model with respect to standard measures. On four other dimensions its business cycle implications represent a substantial improvement. It accounts for (i) persistence in output, (ii) the observation that employment across different sectors moves together over the business cycle, (iii) the evidence of ‘excess sensitivity’ of consumption growth to output growth, and (iv) the ‘inverted leading indicator property of interest rates,’ that high interest rates are negatively correlated with future output.
Mot-clé: Asset pricing , Capital gains, Habit persistence , and Risk aversion Assujettir: E44 - Financial Markets and the Macroeconomy, E32 - Business Fluctuations; Cycles, and O41 - One, Two, and Multisector Growth Models
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 279 Abstract:
Market booms are often followed by dramatic falls. To explain this requires an asymmetry in the underlying shocks. A straightforward model of technological progress generates asymmetries that are also the source of growth cycles. Assuming a representative consumer, we show that the stock market generally rises, punctuated by occasional dramatic falls. With high risk aversion, bad news causes dramatic increases in prices. Bad news does not correspond to a contraction of existing production possibilities, but to a slowdown in their rate of expansion. This economy provides a model of endogenous growth cycles in which recoveries and recessions are dictated by the adoption of innovations.
Mot-clé: Technological Revolutions, Stock Market Value, and Growth Cycles Assujettir: O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, O41 - One, Two, and Multisector Growth Models, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Kehoe, Timothy Jerome, 1953-, Ruhl, Kim J., and Steinberg, Joseph B. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 489 Abstract:
Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from U.S. trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.
Mot-clé: Real exchange rate, Structural change, and Global imbalances Assujettir: F34 - International Lending and Debt Problems, E13 - General Aggregative Models: Neoclassical, and O41 - One, Two, and Multisector Growth Models
Creator: Bertola, Giuseppe Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Assujettir: E25 - Aggregate Factor Income Distribution, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, and O41 - One, Two, and Multisector Growth Models